Bharti Airtel an outperformer; target of Rs 750: Macquarie

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Bharti Airtel an outperformer; target of Rs 750: Macquarie

Broking house, Macquarie Research has recommended an outperformer rating on Bharti Airtel with a target price of Rs 750.

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Bharti Airtel BSE | NSE 28/05/12 Are Mutual Funds betting on Bharti Airtel?

Broking house, Macquarie Research has recommended an outperformer rating on Bharti Airtel with a target price of Rs 750.

Macquarie Research report on Bharti Airtel:

Impact

3Q results well above our expectations: For 3QFY07, revenue was Rs49.1bn, up 12.8% QoQ and 62.4% YoY (in line with our estimates). PAT in 3Q was Rs12.2bn (up 30%QoQ and 123% YoY), ahead of our estimate of Rs11bn, primarily because of better-than-expected EBITDA margins. In addition, PAT was aided by forex gains of Rs2.19bn due to sharp appreciation in the Indian rupee against the US dollar and the Japanese yen in 3Q.

Highest-ever EBITDA margin: EBITDA margin for 3Q was at 40.8%, an expansion of 170bp QoQ and 380 bp YoY. The increase was supported by better EBITDA margins from all businesses. This is historically the strongest EBITDA margin registered by Bharti, led by savings in network opex (flat QoQ) and SG&A expenses (down 2.4% QoQ), driven by economies of scale.

Mobility business revenue grew 13.8% QoQ and 72.8% YoY to Rs37.6bn. ARPU in the quarter stood at Rs427, compared to Rs438 in 2QFY07 and Rs441 in 1QFY07. MoU per month increased to 467 minutes compared to 451 minutes in 2Q, implying increased usage by existing customers even as it adds low MoU/ARPU subscribers. We see continued increase in MoUs.

Capex in 3Q was Rs19.1bn, down 42% QoQ led by much lower capex in the wireless division. Bharti hived off its portfolio of 34,000 towers into a 100%-owned subsidiary, Bharti Infratel. Bharti is entering the Sri Lanka wireless market as the fifth operator (capex not disclosed yet by mgmt).

Bharti is acquiring the i2i submarine cable link between India - Singapore for a consideration of US$110m, its first submarine cable asset.

Price catalyst

12-month price target: Rs750.00 based on a DCF methodology.

Catalyst: 1) Completion of network expansion in all urban centres in the next 12 months; 2) Sequential EBITDA margin improvements; 3) Significant capex and opex savings from network infrastructure sharing.

Action and recommendation

Bharti is our top pick in the India and Asia telecom sectors. We expect Bharti to maintain its revenue/subscriber leadership in Indian wireless in the coming years. We reiterate our strong Outperform rating with a target price of Rs 750.

We will review our earnings estimates and price target in the next couple of days.